Earn-outs An earn-out is deferred consideration dependent upon the future performance of the business being acquired. The principal purpose is to bridge the price expectation gap between the buyer who will pay a price on past profits and the seller who expects a price based on the future potential of the business. The difficulty for … Continued

Competition – UK Legislation The Competition and Markets Authority (“CMA”) may initiate an investigation of a takeover if there is a merger situation qualifying for investigation (other than if covered by the European Commission). The CMA must initiate if it believes a relevant merger has been created which might be expected to result in a … Continued

Completion Accounts – Checklist Aide Mémoire This can only be an aid to guide the reviewer of a contract towards those areas of an acquisition contract which are of accounting significance and which might be sources of dispute in the future. At all stages you should be asking the questions: Is it clear? Is it … Continued

Completion Accounts – The Risks According to PriceWaterhouseCoopers (“PWC”), between 40% and 60% of M&A transactions have a completion accounts mechanism, whereby the purchase price is arrived at by reference to the Target’s net asset value (“NAV”) as at completion. The purchase price is adjusted after completion to reflect the actual net assets of the … Continued

Completion or Locked Box The prevalence of private equity in M&A transactions has led to an increasing trend in the UK to using the “locked box” approach to determine the final price for a target business rather than completion accounts. The primary difference between the two mechanisms is the date of transfer of economic risk. … Continued

Auctions Two techniques: Limited or controlled auction (a “handful” of candidates selected); Open auction (open to the world). Limited auctions can be completed quicker and the threat of an open auction can be used to keep bids up. Open auctions can threaten the business, but the release of information can be controlled. A controlled auction … Continued

Acquisition Rationale Deal rationales for acquisitions are usually to acquire: Customers – access to new customers and markets Products – access to new products and services. Capability/Diversification – access to new people, technology, IP, or distribution channels; Defensive – to prevent a competitor from acquiring the business or key assets. Synergies – arising from strengthened … Continued